Total Plan Assets: $13,500,000
Number of Participants: 93
Participation Rate: 99%
Average Deferral Rate: 7.80%
Default Deferral Rate: 3%
Default Investment: Fidelity Freedom Funds K6 share class
Automatic Enrollment: Yes
Automatic Escalation: Yes
Employer Contribution: 3% safe harbor, plus 100% on a 4% deferral, plus a possible profitsharing contribution up to 4%

Phillips Companies, a provider of construction and landscape services in Beavercreek, Ohio, is a family-run business with a long history.

President Brad Phillips explains that his grandfather started the business in 1942. Phillips’ father joined when he graduated from college, along with his older brothers, who were veterans of World War II. By the time the next generation took over, in 1967, the company had already implemented a tax-qualified retirement savings program. At that early stage, it was a bank-run supplemental savings program, and later the plan was updated to be an insurance-based plan.

“I came to work here in 1987, and at that time we were still using the insurance-based approach,” Phillips says. “Around the year 2000, we made the decision to embrace the modern 401(k) plan.”

In 2017, Phillips Companies hired an independent Employee Retirement Income Security Act (ERISA) Section 3(38) fiduciary investment adviser, Anderson Financial Strategies. Timothy Brown, director of retirement plans at Anderson, leads the client service effort.

In these first two years of collaboration, Anderson has worked with both the employer and the employees to reduce overall costs, cut back on duplicative investment options and put together a broad financial wellness program.

Initially, individual meetings between the employees and the investment adviser were mandatory. Phillips says this requirement, along with the addition of progressive automatic plan design features, has led to a 99% participation rate and an average employee deferral of nearly 8%.

Total Buy-In

“One thing we take a lot of pride in as an adviser is that we push hard to get in front of the participants and have regular, ongoing face-to-face conversations,” Brown says. “It’s really nice when you have a plan sponsor that buys in to this 100%, as Phillips Companies does. It’s a strong statement when the plan sponsor makes face-to-face meetings mandatory. We did some of these initial meetings in the offices and some out in the field—literally out in the gravel mining pits—meeting with each employee. We saw a strong response from the workers.”

According to Brown, the Phillips Companies leadership has worked diligently to make sure the employees know the value of the retirement benefit.

“When you have a diverse workforce with many blue-collar employees, there’s always some small amount of hesitation and uncertainty when you see an adviser come in,” Brown says. “Finance is not something everyone naturally wants to talk about. But what we have seen at Phillips is that, with just a little push, the vast majority of people respond positively and jump on board. The Phillips employees are all in, which is so refreshing to see.”

Working with Anderson, the Phillips Companies plan has moved to a direct fee model, such that any revenue sharing that might still be created from, say, a small transfer agent fee, is rebated directly to participants.

“This approach makes the plan cleaner and more transparent,” Phillips says. “Everyone is paying the same thing, and they appreciate that the fees are called out and are easier to understand.”

Phillips points to another way the retirement plan has evolved in recent years to promote true retirement readiness. “Up until a couple of years ago, we were not a matching plan. We were giving everybody 15% each year we declared a profit,” Phillips says. “Half of this would be offered as a company contribution to the retirement plan and the other half as a bonus, which could either be taken as cash or directed to the plan.”

Although employees liked this flexibility, Phillips says, too many—especially the younger employees—were taking the cash bonus rather than seeing the windfall as an opportunity to up retirement savings.

“So what we did was change our plan design pretty fundamentally, starting with a 4% pay raise across the board,” he says.

Now, Phillips’ contributions to its plan include a 3% safe harbor contribution, a 100% match on the first 4% of salary deferred, and a possible profit share up to 4% of salary. When all of that was added to the 4% raise, participants in year one received the same 15% potential contribution value as with the old plan design—which gave them further incentive to keep putting money into the plan.

The Value of Generosity

Phillips encourages other small businesses to embrace generous retirement benefits. He says any expense is more than compensated for by employee satisfaction, loyalty and productivity.

“The benefit we get as an employer is that this plan is a wonderful recruitment and retention tool,” Phillips says. “Once someone has been with us for even just five or six years, he’ll see a significant balance build up. He then goes on to advocate for our company to friends and colleagues in the industry. His friends in the industry will say they’re jealous that their employer doesn’t offer anything like the Phillips’ retirement benefit.”

Another advantage, for a small business, of offering a retirement plan, Phillips says, is that the company can hold itself up as a premier employer in its market or region. This is especially important in a tight labor market.

“Our plan demonstrates that we don’t just look at employees as random people who show up, do a job and go home,” Phillips says. “We do care about them as people, and we care about their futures and their well-being. We are paternalistic about the retirement benefit, and our employees appreciate that. They know we’re making it possible for them to achieve retirement security.”

Brown echoes this point and says Phillips further stands out because the sponsor pays all of the administration fees, meaning participants pay only the expense ratios of the mutual funds. In addition, Phillips Companies has pushed fees down to a rate uncommon in the small-plan marketplace, he says.

“With the plan using the lowest-cost share classes of each fund, and with the rebating of revenue sharing to participants’ accounts, that creates a very affordable investment environment,” Brown says. “The cost of the plan is incredibly low for a small plan. When you look at someone who stays in this plan for 40 years, the amount of increased growth he will enjoy because the fees are so low and because he isn’t paying for recordkeeping, this is very significant.”

In his 30 years of working as an adviser, Brown says, Phillips Companies stands out among employers in the construction business. Simply put, small-business retirement plans in this industry tend to lag behind those of professional service practices such as doctors’ offices or law firms.

“When you look at what Phillips Companies does for its clients, which has nothing to do with finance, this commitment to the retirement plan and to employee benefits is that much more impressive,” Brown says. “Frankly, they are not normal for a small-plan sponsor. This is reflected clearly when we talk to the employees. So many of them, especially as they gain some tenure, talk so positively about the plan and how generous it is. They tell us Phillips Companies is a great place to work.” —John Manganaro

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